Financial markets continue to be pulled around by movements in the bond markets. Yields moving back higher into the close on Treasuries yesterday push selling pressure into equities and the US dollar is also under selling pressure once more as the Dollar Index has fallen to its lowest level since early February. The Dollar Index is now looking to test its key support at 93.25. The moves have been driven by US Retail Sales which disappointed and has been the latest in a line of data disappointments from the US. There is little on the economic calendar today to drive sentiment other than weekly jobless claims and US PPI, both of which have failed to spark signs of US economic strength recently and this could mean that there is a continuation of this move.
Wall Street closed broadly flat having traded higher for much of the session, with Asian markets lower overnight (the Nikkei 225 was down 1%). European markets are following this trend early in the session, trading mixed to lower.
Forex trading shows the dollar remains under pressure against major pairs today, with the euro specifically strong. This comes despite no real sign of any improvement in the negotiations between Greece and the Eurogroup. The Kiwi dollar is also very strong after New Zealand retail sales beat expectations. The gold and silver rallies are also holding on to yesterday’s gains.
There is very little to drive European markets this morning on the calendar until the US weekly jobless claims at 1330BST. Expectation is for claims to increase by 10k back to 275,000. The Producer Prices Index is also released at 1330BST which is expected to show no improvement with -0.8% for the year, although core data is expected to improve slightly to +1.1%.
Chart of the Day – Silver
The sharp upside breakout on yesterday’s strong bullish candle has significantly improved the outlook once more, but there is still much to do to turn bullish. As with the gold chart (see below) there is still much resistance overhead that needs to be decisively breached before I am calling an end to these ranging conditions that silver has been trading in for the past few weeks. The big near term resistance that has been in pace for 4 weeks at $16.70 was demolished yesterday as on the announcement of the weaker than expected retail sales data. The sharp bull candle is clearly a positive sign, but the RSI as yet has not moved above the high it made at 65 on the March run higher to $17.38. That makes today’s price action all the more important. The bulls must retain this momentum and push the RSI above 65 otherwise once more the profit takers could take advantage. The intraday hourly chart shows this profit taking has not come in yet, whilst the hourly momentum suggests RSI and MACD remain positive. The ideal upside breakout would be a close above $17.40 which would then re-open the January high of $18.48. The support comes in with yesterday’s move above $16.70.
What we are seeing is a positive technical set-up on the euro which is being driven by the newsflow (as US retail sales becomes the latest US data point to disappoint). This sharp drive higher on the euro is now in direct challenge of the key resistance at $1.1390. This reaction high peaked on 7th May and was the highest in the euro since 23rd February. Any sign on the momentum indicators that might have been hinting at a correction is being aborted as the bulls look to pressure the key near term resistance. The strength of the bull candle yesterday along with momentum indicators across both daily and hourly time frames suggests that there is a real appetite for an upside breakout and a test of the nest resistance band which begins at $1.1450 towards $1.1530. I would be looking to buy into any intraday weakness today, with an initial support band between $1.1290 (old resistance becomes new support) and $1.1340 (the overnight lows). Below $1.1200 damages the bullish breakout argument, whilst below $1.1130 would begin a corrective outlook.
The last week has shown an incredible run higher which has overcome a huge level of resistance at $1.5550 and confirmed that the sterling bulls are going a long way towards improving the long term outlook. I am though noticing that the pace of the advance is beginning to slow slightly. In the past four sessions, the strength of the bulls candles is diminishing. Having posted a low to high range of around 280 pips on the 8th May, this reduced on successive days to (approximately) 220 pips, 160 pips and now yesterday at 130 pips. Being able to keep up this pace of advance is unlikely, with the RSI now around 74, and Stochastics just beginning to plateau. For now the buyers are still happy to back the run higher (which is now 7 consecutive days of bull candles) but perhaps watch for the MACD histogram starting to fall back for further sign of a potential correction. Looking at the intraday hourly chart shows a strong stepped advance on Cable in the past week or so, but I am now mindful that the hourly momentum indicators are all showing bearish divergences. The initial support comes in at $1.5630 below whish the key breakout support range $1.5500/$1.5550 lies. The next resistance for the breakout to encounter is at $1.5825.
If normal service is to continue then perhaps we can expect maybe one more bearish candle before we get the traditional retracement once more. Despite the strong bearish candle yesterday the range that has built up over the past weeks (and to an extent months) continues. Momentum indicators remaining within the bounds of neutrality confirm this with RSI consistently between 40/60, MACD lines around flat and Stochastics failing to move above 80 or below 20. The intraday hourly chart has shown up something a little out of the ordinary though. Very near term we have seen a sharp move below the 119.40 pivot level, but the hourly RSI reached 17 which was the most extreme move for well over a month. This suggests that the selling pressure was the most severe since that of a bearish trending phase in mid-March. This may suggest that the bears are beginning to gain control. In my videos yesterday I looked at the daily Bollinger Bands and said that in a range play, moving away from the top band should result in a move back towards the bottom band (which is currently at 118.63). I feel that the near term selling pressure has more to go in this phase. The 119.40 pivot band is now acting as resistance again.
The technical set-up on gold did not signal yesterday’s sharp move higher (driven by the disappointing US retail sales). However has it changed the outlook for gold? The reaction today could be all important. Extreme moves have been seen within this 7 week range before (notably in late April) only for an even bigger retracement to set in. The range high at $1224 contains sizable resistance overhead, whilst the RSI does not suggest that there is momentum yet behind the move, as it continues to hold between 40/60. Yesterday’s rally high at $1218.80 needs to be breached today otherwise there will be the temptation just to take the profit and continue to play the range. This is what I am anticipating as for now signals are not calling for an upside breakout of the range above $1224. Support comes in the range $1200/$1207 and a break back below would confirm the continuation of the range.
The bulls have consolidated their position with a solid if unspectacular positive session having been posted yesterday. Consistently holding the RSI above 60 maintains a bullish outlook. Although my concern of the declining Stochastics have been put on ice for now, another day today posting a red candle (ie. a close below the open) will begin to weigh on the Stochastics. Furthermore, the MACD lines look to be in the process of crossing over now (albeit in gradual fashion). The hourly technical indicators have just rolled over slightly which also leaves me a touch cautious with the break back above $60. However, whilst the oil price continues to find support above the $59.50/$60.00 support band, the bulls will be in control for a retest of the $62.60 spike high and an eventual move towards the big base pattern implied target at $65.00 from the daily chart. Key support remains in place at $58.30.